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The United States Court of Appeals for the Sixth Circuit rendered a strong decision recently, noting that no citizen should be targeted by an executive agency based on his or her political views.1 In 2010, the Treasury Department’s Inspector General for Tax Administration (“Inspector General”) published a report finding that the Internal Revenue Service (“IRS”) had developed irrelevant criteria and had been applying heightened scrutiny to certain organizations applying for tax-exempt status under IRC § 501(c).2 In the report, it was stated that the IRS had developed “Be on the Lookout” (“BOLO”) listings for organizations with specific names (e.g., “Tea Party,” “Patriots,” “9/12”) or policy positions.3 The report found that applicants who met the criteria of the BOLO listings would be sent to a “team of specialists” and applicants would then experience “significant delays and requests for unnecessary information.”4

The court found that the leading plaintiff in this case, the NorCal Tea Party Patriots (“NorCal”), received unfavorable treatment and a long delay in its tax exempt application process.5 NorCal applied for tax exempt status in April 2010.6 In July of the same year, NorCal was asked to provide additional information to the IRS.7 NorCal responded promptly with the information requested, which amounted to 120 pages of material.8 Eighteen months later, when NorCal next received a request letter from the IRS for more information, the organization was given just three (3) weeks to respond.9 Further, the information requested by the IRS in both of these instances was later found by the court to be irrelevant to the IRC § 501(c) application process.10

One week after the release of the Inspector General’s report in 2010, NorCal and other organizations filed suit against the IRS and certain IRS officials, based in part upon an alleged violation of their rights under the Privacy Act, 5 U.S.C. 522a, and the First and Fifth Amendments.11 The plaintiffs also claimed that asking for sensitive information not usually required on an application for tax-exempt status violated Internal Revenue Code provision 6103.12 Plaintiffs were granted the right to certify a class action lawsuit by the United States District Court for the Southern District of Ohio, Western Division, and sought discovery from the IRS.13 Plaintiffs then filed discovery requests seeking the information included on the BOLO listings.14 The IRS argued that it could not disclose the information due to IRC § 6103, claiming that the information was protected as confidential return information and even the IRS’s own lawyers were unable to review it.15 The district court held that the information fell under the exception in IRC § 6103(h)(4)(b) and should be disclosed to the plaintiffs.16

In an extended battle over discovery, the IRS sought a writ of mandamus from the Sixth Circuit.17 The Sixth Circuit upheld the lower court’s discovery order, reasoning that because IRC § 501(c)(3) & (4) applications are available to the public once they are approved for tax-exempt status, those organizations fall outside of IRC § 6103; and, for the applications that were still pending or had been withdrawn, the court reasoned that an application and the information contained therein was neither a return, nor return information.18

The Sixth Circuit also denied the IRS’s writ and, in the closing paragraph of its Opinion, included the following about the IRS:

“In closing, we echo the district court's observations about this case. The lawyers in the Department of Justice have a long and storied tradition of defending the nation's interests and enforcing its laws-all of them, not just selective ones-in a manner worthy of the Department's name. The conduct of the IRS's attorneys in the district court falls outside that tradition. We expect that the IRS will do better going forward. And we order that the IRS comply with the district court's discovery orders of April 1 and June 16, 2015-without redactions, and without further delay.”19

The outcome of this case is very interesting, since the Sixth Circuit agreed with the IRS’s argument that the lower court applied the wrong analysis to IRC § 6103(h)(4)(b), and even noted that there was a case on the subject which had already deemed this kind of information to be barred under IRC § 6103 as return information. The Sixth Circuit’s decision places a new burden on the IRS, however, as it will now need to provide all of the information requested by the plaintiffs. That said, whether the plaintiffs will ultimately prevail remains to be seen.

1 See United States v. Norcal Tea Party Patriots (In re United States), 2016 U.S. App. LEXIS 5213 (6th Cir. Ohio 2016).2 Id. at 6-7.3 Id.4 Id at 7-8.5 Id.6 Id.7 Id.8 Id.9 Id. at 10-11.10 Id.11 Id.12 I.R.C. 6103 is in place to protect taxpayers from returns or return information from being disclosed subject to certain exceptions. See Id. at 17-18 (“In the wake of President Nixon's resignation, Congress enacted the Tax Reform Act of 1976, which overhauled the rules governing disclosure of taxpayer information. No longer would the Executive have free rein over the handling of sensitive taxpayer records; instead, as the Treasury Department's Office of Tax Policy acknowledged, "Congress undertook direct responsibility for determining the types and manner of permissible disclosures." Office of Tax Policy, Taxpayer Confidentiality Provisions, Vol. I at 22. At the core of this statutory regime is the general rule that "[r]eturns and return information shall be confidential[.]" 26 U.S.C. § 6103(a). "Returns" include any "tax or information return," as well as "supporting schedules . . . which are supplemental to, or part of, the return so filed." 26 U.S.C. § 6103(b)(1). Congress has carefully delineated the circumstances in which returns or return information can be disclosed to government officials or to the public. IRS officials may, for example, disclose a taxpayer's own return or return information to that taxpayer. See 26 U.S.C. § 6103(c). In certain cases, federal officials must disclose returns and return information to state tax administrators and local law enforcement. See 26 U.S.C. § 6103(d). And the IRS must disclose returns and return information to Congressional committees upon written request. See 26 U.S.C. § 6103(f).”)13 Id.14 Id.15 Id.16 Id.17 Id. (“The writ of mandamus is a drastic and extraordinary remedy reserved for really extraordinary causes. Mandamus should issue only in exceptional circumstances involving a judicial usurpation of power or a clear abuse of discretion. To obtain the writ, the petitioner must show that it lacks any other adequate means of obtaining relief, that its right to relief is clear and indisputable, and that issuance of the writ is appropriate under the circumstances.”)18 Id. and Id. at 24-25.19 Id. at 29-30.

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.

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